Thursday’s ETF Chart To Watch: Rydex CurrencyShares Euro Trust (FXE)

ETF Database

Nov. 3, 2011, 4:00 AM

Stocks bounced back higher on Wednesday as investors took the opportunity to scoop up beaten down securities on the cheap following Tuesday's massive sell-off. With no news headlines from the Euro zone, trading was quite tame on Tuesday as investors turned to the FOMC decision on the home front. The Fed left interest rates unchanged as expected, and surprisingly, volatility did not sweep over Wall Street as Ben Bernanke addressed the nation. The chairman made no announcements of further stimulus, although many economists are anticipating some sort of QE3 in the not too distant future. Gold inched a bit higher amidst the uncertainty, and the precious metal closed near $1,730 an ounce for the day.

The European Central Bank is slated to announce its decision regarding interest rates later today and analysts are expecting for the rate to remain unchanged at 1.5%. Investors will be paying close attention to the economic commentary released after the decision itself to gain more insights about the financial health of the debt stricken Euro zone. Surprisingly bullish, or bearish, commentary from the ECB may spark volatile trading in the currency markets, which makes the Rydex CurrencyShares Euro Trust ( FXE) our ETF to watch for today [see New ETF Scorecards, In-Depth Analysis, And Ranking Of Every ETF].

Chart Analysis

Ongoing Euro zone debt woes have led to some chaotic trading in the currency markets as traders have been taking advantage of the wild swings in investor sentiment, swaying from optimism and euphoria to absolute fear and panic [see Why The European Bailout Is Just Postponing The Inevitable]. Overall, however, confidence in the Euro zone has declined and likewise the euro has faced some serious headwinds over the past few months. In fact, since topping out at $148.81 a share on 5/4/2011, this fund has lost just over 7%, although support appears to be building around the $135 level [see FXE Returns].

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It's worth noting that FXE failed to close above its 200-day moving average (yellow line) at the end of last week, which paved the way for profit taking on Monday, seeing as how the $140 level was significant resistance for the fund. This ETF is now back below its 200-day moving average and will likely remain under pressure as EU leaders hammer out a comprehensive rescue plan in the coming weeks [see our New Euro Free Europe Portfolio].

Outlook

FXE appears poised to move higher from a technical perspective seeing as how this ETF was quite resilient as it held support at $135 a share, following the announcement of the Greek referendum on Tuesday. Also, notice how FXE has been carving out rising levels of support since its most recent low point in the begging of October. Nonetheless, entering at current levels is extremely speculative given the cloud of uncertainty still looming over the debt stricken currency bloc [see Which Euro ETF Is Right For You?]. In terms of upside, FXE has resistance at the $140 level, while support comes in at $135 a share. However, a negative economic outlook for the Euro zone could push this ETF even lower, perhaps back down towards $130 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.